San Francisco's New Housing Rules Are the Best Thing to Happen to Airbnb

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San Francisco's New Housing Rules Are the Best Thing to Happen to Airbnb

Image: Airbnb

Airbnb has always been illegal in San Francisco.

That's right: the city that gave rise to the $10 billion room-renting site never allowed the service to operate—at least not officially. But that all changed on Tuesday, when San Francisco's Board of Supervisors voted to legalize Airbnb-style short-term rentals, albeit with restrictions that fall far short of embracing the company's idealistic rhetoric.

Not that Airbnb ever really felt illegal in San Francisco. Sure, there were some tiffs with landlords, some lawsuits, some fines. But as the vast number of San Francisco listings on the site attest, Airbnb has thrived in the city regardless of what the law said.

Still, running a business under constant threat of legal action—or more importantly, a business whose customers are under constant threat of legal action—isn't really sustainable. Manning the barricades of disruptive innovation against an army of bureaucrats might feel bold during a startup's early days, and it's that "ask forgiveness, not permission" attitude that allowed Airbnb to grow so big so quickly. But a perpetual running battle with regulators is hardly the most efficient way to hold onto the value Airbnb has created. At some point, the compromise must come.

The company is still waiting for that compromise in other parts of the world. But in the case of San Francisco, Airbnb and its users can now rest assured that all that value has been locked in.

Market for a Crackdown

At first glance, the terms of San Francisco's legislation don't seem that favorable to Airbnb. The new rules only allow permanent San Francisco residents to offer their homes for rent. Entire homes can only be rented out for a maximum of 90 days per year. Hotel tax must be collected, and every rental must come with $500,000 in liability insurance. It's a far cry from the "hey, I'm going away for the weekend, why don't I make a few bucks off my empty apartment" vibe the company tried to cultivate in its early days.

The problem was that this notion of casual sharing turned out to be an incredibly narrow and simplistic definition of the marketplace Airbnb quickly became. Despite the company's own putative efforts to stay close to those origins, the network effect created by Airbnb's skyrocketing growth motivated property managers, landlords, and real estate speculators to make the site their permanent marketing platform for their de facto hotels. Airbnb's reach meant anyone inclined to make some money would be foolish not to try. And it was that straying that created a market for a crackdown.

Typical complaints about Airbnb rentals tend to center on unruly strangers coming in and out of the apartments of neighbors who never seem to be home. But in San Francisco, where rents are through the roof because the city lacks adequate housing supply, critics blamed Airbnb as the culprit for even more of that housing going off the market because short-term rentals were more lucrative than long-term leases. Because of Airbnb's popularity, the argument goes, rents in San Francisco are even higher than they would be anyway.

Back to Its Roots

The new regulations in San Francisco are meant to address those concerns by seemingly making it impossible to rent out an apartment or house like a full-time hotel. At most, the 90-day limit would allow hosts to rent their places as quarter-time hotels, meaning the rest of the year they actually have to live there. And in that sense, the San Francisco Board of Supervisors has helped guide Airbnb back toward its roots as a place where people can make a few bucks off a room that would otherwise sit empty.

For its part, the company was glowingly supportive of the lawmakers' decision. "The legislation that moved forward tonight will give regular people the right to share the home in which they live and make it fair to share in San Francisco," Airbnb said in a statement following the ordinance's passage. "This vote was a great victory for San Franciscans."

In supporting the new rules rather than pushing back against any limitations, Airbnb is showing a pragmatic side that really is the only way forward toward becoming a mature, stable business. Idealism may be good marketing, but it typically doesn't get you far in local politics. And for a company like Airbnb, "local" is everything. San Francisco's new legislation doesn't give Airbnb the right to share without limits. But it does give the company a template as it faces the imperative to transition its business from legally dubious disruptive force to legitimate good neighbor.